Monthly economic indicators[725]

March/April 2003 The "Monthly Economic Indicators" (MEI) provides a variety of economic analysis and data in a convenient format. The MEI does not interpret or evaluate government policies, and every attempt is made to present factual information in an informed and balanced manner consistent with generally accepted economic principles. It is available to all employees of Industry Canada in either hard or electronic copy, or can be accessed via the Internet at http://strategis.ic.gc.ca/sc_ecnmy/mera/engdoc/03.html. MONTHLY ECONOMIC INDICATORS March/April 2003 HIGHLIGHTS In January, real Gross Domestic Product (GDP) growth gained 0.4%, following slow growth in the final months of 2002. Employment increased by 14 000 in March, putting total job creation to 67 000 since the beginning of the year. In contrast, employment decreased in the United States (U.S.) in the first quarter. Domestic demand should provide the bulk of support to growth in the first quarter. As uncertainties over the conflict in Iraq recede, question marks remain on the strength of the global economic recovery in the near term. The Bank of Canada raised its overnight rate in March, while the U.S. Federal Reserve kept its policy rate unchanged. The Canadian dollar continued to make gains and surpassed US¢68.0 in early April, its highest level in three years. Key Monthly Economic Indicators % Change since last last month year Real GDP ($97 B) Goods Services Composite Index Employment (000's) Full-time Part-time Unemployment* (%) Youth* Adult* 993.1 307.7 685.7 180.6 15,717 12,758 2,959 7.3 12.7 6.3 0.4 0.6 0.3 0.3 0.1 0.2 -0.3 7.4 13.2 6.3 4.5 0.7 -14.5 4,079 1.3 -1.3 -1.8 3.4 4.1 3.1 5.7 2.9 2.6 4.4 7.7 13.6 6.5 Jan Jan Jan Feb Mar Mar Mar Mar Mar Mar CPI inflation* 4.6 Retail Sales ($M) 25,995 Housing Starts (000's)** 210.5 Trade Balance* ($M) Exports Imports M&E 4,921 34,967 30,045 8,663 1.5 Feb 2.9 Jan -1.3 Mar 5,089 6.3 8.0 3.8 March Jan Jan Jan Jan April 9*** 3-mth Corp. paper (%)* Long bond yield (%)* Canadian dollar (US¢)* 3.26 5.06 68.17 2003 3.28 5.13 68.13 2002 2.36 5.79 62.73 *Data in levels only – % change not reported **Canada Mortgage and Housing Corporation ***Bank of Canada's Weekly Financial Statistics All other data from Statistics Canada The "Monthly Economic Indicators" (MEI) provides a variety of economic analysis and data in a convenient format. The MEI does not interpret or evaluate government policies, and every attempt is made to present factual information in an informed and balanced manner consistent with generally accepted economic principles. It is available to all employees of Industry Canada in either hard or electronic copy, or can be accessed via the Internet at http://strategis.ic.gc.ca/sc_ecnmy/mera/engdoc/03.html. Industry Canada Industrie Canada Canada MONTHLY ECONOMIC INDICATORS March/April 2003 CONTENTS The Economy Page Real GDP by Industry ........................................................................................... 3 Consumer Spending and Attitudes ...................................................................... 4 Business Investment in Plant and Equipment ...................................................... 5 Housing ................................................................................................................ 6 Trade and Competitiveness .................................................................................. 7 Labour Market Trends Employment and Unemployment ......................................................................... 8 Industry Overview ................................................................................................. 9 Provincial Overview .............................................................................................. 10 Prices and Financial Markets Consumer and Commodity Prices ....................................................................... 11 Short-term and Long-term Interest Rates ............................................................. 12 Exchange Rates and Stock Prices ....................................................................... 13 The United States Economy U.S. Economic Trends ......................................................................................... 14 Coming Up... Key Future Data Releases/Planned Events ........................................................... 15 This report uses data available as of April 9, 2003. It has been prepared by Eric Chalifoux, Stéphane Crépeau, Anik Dufour, Kevin Koch, Joseph Macaluso, Arif Mahmud, Sue Moore, François Poitras, François Rimbaud, and Patrick Taylor of the Micro-Economic Analysis Directorate, under the direction of Hossein Rostami and François Poitras. Translation has been provided by Lucie Larocque and Sue Hopf is responsible for production support. Sources of information include, primarily, Statistics Canada, as well as the Bank of Canada, Canada Mortgage and Housing Corporation, Canadian Real Estate Association, Conference Board of Canada, U.S. Bureau of Economic Analysis, and U.S. Bureau of Labor Statistics. Unless cited otherwise, data contained in graphs and tables are derived from Statistics Canada. Please address comments to François Poitras at 613-957-3404 or through the Internet at poitras.francois@ic.gc.ca. ISSN 1206-2588 THE ECONOMY Real GDP by Industry Output surged in January... Real GDP at basic prices* surged 0.4% in January, following two months of sluggish growth. January's strong performance was mainly the result of a buoyant Wholesale Trade sector and gains in motor vehicle manufacturing as firms likely build up inventories in advance of an anticipated war with Iraq. This, together with other indicators, including a rise in the composite leading indicator, points to continued growth in the first quarter of this year. ...with gains both in the Goods and Services sectors Production in the goods sector rose 0.6% in January, up from a decline of 0.1% in December. January's below-normal temperatures benefited the Utilities and Mining & Oil & Gas Extraction sectors. However, colder temperatures had a dampening effect on Construction. Meanwhile, Manufacturing output rose 0.7% as motor vehicle manufacturers boosted output by 6.2% following a four-month retrenchment. Services output increased 0.3% in January, after rising 0.1% in December. Surging motor vehicle and parts production pushed Wholesaling higher. But lower consumer confidence and cold temperatures hampered new motor vehicle and furniture sales which lowered Retail Sales. Accommodation & Food was down 0.6% reflecting lower activity in the hospitality industry which remained affected by geopolitical uncertainty. *Starting with July data, the Chain-Fisher formula is used to derive monthly GDP estimates. The change is applied from January 1997 and will be pushed back to January 1961 within a year. Real GDP at Basic Prices 1.5 % change Composite Leading Indicator Real GDP at Basic Prices (1997 chained dollars) January 2003 $ millions Total Economy Business Sector Goods-producing 993,145 842,527 307,682 monthly % Change since last month year change 4,138 3,955 1,799 243 352 604 -480 1,090 2,331 1,567 -92 73 -210 530 150 80 81 85 81 -142 74 106 0.4 0.5 0.6 1.1 0.9 2.2 -0.9 0.7 0.3 2.6 -0.2 0.2 -0.5 0.3 0.3 0.4 0.2 0.1 0.9 -0.6 0.3 0.2 3.4 3.6 4.1 7.7 2.7 5.5 2.1 4.3 3.1 8.9 0.6 3.8 3.4 1.8 4.7 5.8 2.3 4.2 3.9 1.2 3.1 2.2 1.0 0.5 0.0 22,008 Agri., Forest, Fish, Hunt* Mining & Oil & Gas Extraction 38,329 Utilities Construction Manufacturing 1998 1999 2000 2001 2002 2003 -0.5 28,693 52,468 165,790 -1.0 1997 Real GDP by Major Sector 131 127 123 119 115 111 107 103 99 1997 1998 1999 2000 2001 2002 2003 Goods Manufacturing Services January 1997 = 100 Service-producing 685,724 Wholesale Trade 61,435 Retail Trade 54,864 Transportation & Warehousing 45,463 Information & Cultural 46,237 FIRE** Professional*** Admin & Waste Mgmt Education Health & Social Arts, Entertain. & Recreation Accommodation & Food Other Public Administration 195,760 46,565 21,891 44,738 58,323 9,361 23,443 22,560 56,048 *Agriculture, forestry, fishing & hunting **Finance, Insurance & Real Estate ***Professional, scientific & technical services MEI March/April 2003 3 THE ECONOMY Consumer Spending and Attitudes Consumer spending rises sharply in the fourth quarter... Real consumer spending grew 4.4% in the fourth quarter following 1.6% growth in the third quarter. Real consumer spending rose 2.9% in 2002 as opposed to 2.6% in 2001. The fourth quarter advance was led primarily by an 8.6% increase in sales of durable goods (following a 4.1% decline in the third quarter), stemming from a higher demand for motor vehicles, furniture, and appliances. Sales of semi-durables also posted impressive gains in the fourth quarter, rising at a rate of 5.3%, compared to a decline of 1.9% in the previous quarter. Total Retail and Motor Vehicle Sales 30.0 28.0 26.0 24.0 22.0 20.0 18.0 16.0 1996 Total Sales (Left) 1997 1998 1999 2000 2001 2002 Motor Vehicle Sales (Right) $ Billions $ Billions 7.5 7.0 6.5 6.0 5.5 5.0 4.5 4.0 2003 …but the outlook is mixed for the first quarter of 2003 Following an increase of 2.0% (annual rate) in the fourth quarter, real retail sales would grow 0.4% in the first quarter, if nothing else changes. Meanwhile, given the important drop in January (14.1%), demand for new vehicles will likely slow in the first quarter. Consumer confidence continued its downward trend. After remaining well above 121 points throughout 2002, the index plunged down to 114.3 points in the first quarter of 2003, its lowest level since the third quarter of 2001. On the positive side, personal disposable income increased 4.2% in the fourth quarter and should register reasonable growth in the first quarter given the healthy state of the labour market. Real Consumer Spending and Household Finances $ Millions, SAAR (unless otherwise noted) 2001 2002 Real Consumption (97$) % change Durable Goods % change Semi-Durable Goods % change Non-Durable Goods % change Services % change Disposable Income % change Saving Rate (%) Debt-to-Income Ratio (%) 579,999 2.6 85,939 4.5 52,360 3.8 133,186 1.1 308,888 2.6 665,924 4.4 4.6 95.2 596,812 2.9 91,410 6.4 54,374 3.8 135,573 1.8 316,165 2.4 695,857 4.5 4.5 96.7 2002 Q3 597,917 1.6 90,438 -4.1 54,099 -1.9 135,927 3.0 318,030 3.0 698,348 3.3 4.2 97.1 2002 Q4 604,452 4.4 92,323 8.6 54,801 5.3 137,550 4.9 320,446 3.1 705,624 4.2 3.7 97.6 Retail Sales and Consumer Credit January 2003 % Change since last last $ millions month year 0.7 0.4 0.2 3.1 -1.7 0.8 1.8 0.0 1.5 0.4 2.9 6.0 2.7 1.8 3.7 1.7 3.0 1.3 6.1 8.6 Total Retail Sales (S.A.) 25,995 Food Drug Stores Clothing Furniture Automotive General Merch. Stores All other Stores Total ex. motor vehicles Consumer Credit 5,731 1,314 1,377 1,546 10,426 2,879 2,722 19,279 223 Real Consumer Spending and Attitudes 170 Index (1995 Q1=100) Total Spending (Left) Durable Goods (Left) Consumer Attitudes* (Right) 1991=100 160 150 140 120 130 100 110 80 90 123412341234123412341234123412341 95 96 97 98 99 00 01 02 03 60 *Conference Board of Canada MEI March/April 2003 4 THE ECONOMY Business Investment While profits increased, investment stalled in the fourth quarter... Machinery & Equipment (M&E) investment fell by 0.4% (annualized) in the fourth quarter, following respectable growth in the previous three quarters. Non-residential construction fell by 3.2%, the sixth consecutive quarterly decline. It has now reached its lowest point since 1999. On the positive side, corporate operating profits continued their recovery, rising by 22% in the fourth quarter. Corporate operating profits rose 5.6% in 2002 after falling 14.6% in 2001. Investment in Plant and Equipment 235 215 195 175 155 135 115 95 75 60 1992 1994 1996 1998 2000 2002 1993 1995 1997 1999 2001 70 80 Index (1992Q1=100) Machinery & Equipment (Left) Non-Residential Construction (Left) Capacity Utilization (Right) 90 % 100 ...and uncertainty continues to weigh on investment decisions Recovering profits could signal future increases of investments. However, uncertainty over the global economic recovery will likely exert a negative impact on investment prospects. In fact, the recent drop of the Conference Board Business Confidence Index (from 136 in the fourth quarter to 131.5 in the first quarter) indicates that investment projects could be put on hold. Corporate Profits & Business Confidence 200 175 150 125 100 Index, 1991=100 Corporate Profits as % of GDP (Right) Business Confidence* (Left) % of GDP 12 10 8 6 75 4 1992 1994 1996 1998 2000 2002 1993 1995 1997 1999 2001 2003 *Conference Board of Canada Business Investment and Corporate Finances $ Millions, SAAR (unless otherwise noted) 2001 BUSINESS INVESTMENT Machinery & Equipment (1997$) % change Non-residential Construction (1997$) % change Capacity Utilization (%, Non-farm goods) Capacity Utilization (Mfg. sector) CORPORATE FINANCES & ATTITUDES Corporate Operating Profits % change Profits - Non-financial industries % change Profits - Financial industries % change Business Credit % change 147,759 -14.6 113,095 -16.9 34,664 -6.2 849,269 5.5 156,316 5.8 123,917 9.6 32,401 -6.5 880,792 3.7 139,708 49.7 107,872 47.0 31,840 59.3 872,486 3.6 158,128 64.1 123,920 74.2 34,212 33.3 878,879 3.0 159,648 3.9 128,036 14.0 31,612 -27.1 883,954 2.3 167,780 22.0 135,840 26.7 31,940 4.2 887,848 1.8 87,145 -2.2 48,126 0.8 82.3 81.9 85,067 -2.4 45,061 -6.4 82.5 83.5 82,308 0.9 45,632 -12.9 81.7 82.1 85,374 15.8 45,078 -4.8 82.3 83.4 86,340 4.6 44,950 -1.1 83.1 84.3 86,247 -0.4 44,585 -3.2 82.9 84.3 2002 2002 Q1 2002 Q2 2002 Q3 2002 Q4 MEI March/April 2003 5 THE ECONOMY Housing Housing activity remained strong in the fourth quarter... Following a 16.3% (annual rate) rebound in the third quarter, real residential construction growth increased by 11.3% in the fourth quarter. For the whole of 2002, real residential investment grew at a rate of 16.0%, almost four times that of 2001 (+4.7%). Housing Activity 23 20 18 16 14 11 Housing Starts* (Right) $ Billions Units (000s) 250 225 200 175 150 125 Residential Construction (Left) 1997 1998 1999 2000 2001 2002 100 2003 ...and stayed healthy in the first quarter of 2003 After reaching a 16-year high of 246,100 units in February, housing starts fell to 210,500 units in March. Still, starts averaged a robust 213,300 units in the first quarter, an increase of 3.4% (annual rate) from its fourth quarter level. Moreover, housing s tar ts r em ained well a bo ve th e long - te r m demographic replacement demand of 165,000 units. Despite a 14.4% drop in February, the value of building permits is up 3.1% so far in the first quarter and sales of existing homes remains strong. Housing activity continues to be supported by healthy job creation, income growth and a high level of housing affordability despite recent mortgage rate increases. 9 1996 *Canada Mortgage and Housing Corporation Monthly Housing Indicators Levels Residential Construction (1)* ($97M, basic prices) Change since Last Last month year -2.1% -14.2% -409 10.0% 2.4% -3,539 -2,700 -600 -500 16,000 -200 -2,300 -8,900 -100 1,400 -8,000 500 18,281 2,386 23,820 Building Permits, $M (2)* Sales of Existing Homes (2)** (# of units) Housing Starts, (3)*** (# of units, SAAR) Newfoundland & Labrador Prince Edward Island Nova Scotia New Brunswick Quebec Ontario Manitoba Saskatchewan Alberta British Columbia 210,500 -35,600 1,500 -600 500 -200 19,900 13,900 2,600 -300 39,800 -4,400 76,900 -42,300 3,500 -100 3,300 800 40,800 -600 21,700 -1,800 1 - January data; 2 - February data; 3 - March data Sources: *Statistics Canada; **Canadian Real Estate Association; ***Canada Mortgage and Housing Corporation Real Investment in Residential Structures $97 Millions, SAAR (unless otherwise noted) 2001 Construction by Business sector 47,967 % change 4.7 New Housing % change Alterations & Improvements % change Ownership & Transfer Costs % change Residential Construction % change 23,866 6.2 16,529 0.0 7,754 10.0 48,201 4.7 2002 55,627 16.0 29,736 24.6 17,380 5.1 8,632 11.3 55,847 15.9 2002 Q3 56,226 16.3 30,672 30.4 17,520 8.5 8,216 -10.5 56,475 16.1 2002 Q4 57,745 11.3 31,564 12.2 17,900 9.0 8,400 9.3 57,936 10.8 Growth in Real Residential Construction % change, SAAR 36.8 23.9 16.0 8.2 5.4 8.3 3.5 4.7 -1.8 99 00 01 02 3 01 4 1 2 02 3 4 16.3 11.3 -3.5 97 98 MEI March/April 2003 6 THE ECONOMY Trade and Competitiveness Exports rose and imports fell in January... Merchandise exports rose by 1.3% in January, following declines in November and December. Exports of Energy (+7.6%) and M&E (+4.6%) posted the highest increases. Exports to the European Union jumped 27.2% and to Japan 6.3%, while those to the U.S. edged up only 0.2%. Total imports fell by 1.3% in January as significant decreases from Japan, the European Union and non-OECD countries more than offset higher imports f r o m t h e U . S. a n d o t h e r O EC D c o u n t r i e s . Declines were posted by Automotive products (-7.4%), M&E (-1.8%) and Other Consumer Goods (-0.5%). The largest increase was posted by imports of Energy (+9.0%). Merchandise Trade Flows and Balance 40.0 35.0 7.5 30.0 25.0 20.0 15.0 Trade Balance (Right) 10.0 0.0 1995 1996 1997 1998 1999 2000 2001 2002 2003 Imports (Left) 2.5 5.0 $ Billions Exports (Left) $ Billions 10.0 ...leading to an increase in the trade surplus The merchandise trade surplus increased by $842 million to $4.9 billion in January, after falling two consecutive months. Canada's trade surplus with the U.S. decreased by $360 million to $8.0 billion and the trade deficit with all other trading partners decreased by $1.2 billion to $3.1 billion. Sputtering U.S. growth will likely limit net exports' contribution to Canadian growth in the first quarter. Canada-United States Unit Labour Cost Ratios 110 Ratio: Canada/U.S.; 1992=100 $US per $CAN 1.0 A falling line represents an increase in Canadian competitiveness 90 Business Sector (Left) Exchange Rate (Right) 0.9 0.8 70 0.7 50 3 4 1 2 3 4 01 02 Source: U.S. Bureau of Labor Statistics & Statistics Canada 92 93 94 95 96 97 98 99 00 01 02 0.6 Merchandise Trade January 2003 Levels ($ millions) December 2002 Exports to United States 34,527 29,288 30,447 20,956 4,079 8,332 2,557 5,186 3,066 5,921 7,715 7,422 1,461 1,832 1,470 259 5,848 8,823 7,239 3,984 Year-to-date ($ millions) Jan.-Dec. 2001 414,638 350,907 350,622 255,027 64,016 95,880 30,883 54,744 39,307 66,797 99,733 92,858 15,972 20,357 17,752 2,886 68,456 112,422 72,546 42,926 Change ($M) Dec. to Jan. 2003 440 61 -402 421 842 -360 -104 394 -155 -210 357 94 87 28 132 7 98 -160 -533 -18 % Change Dec. to Jan. Jan.-Dec. 2001 to 2003 Jan.-Dec. 2002 1.3 0.2 -1.3 2.0 -1.0 -0.7 1.6 -0.1 January 2003 34,967 29,349 30,045 21,377 4,921 7,972 2,453 5,580 2,911 5,711 8,072 7,516 1,548 1,860 1,602 266 5,946 8,663 6,706 3,966 Jan.-Dec. 2002 410,687 348,384 356,109 254,688 54,578 93,696 30,541 50,421 36,650 69,435 94,718 97,083 17,342 21,778 16,458 3,134 68,828 105,784 81,445 46,416 Imports from United States Trade Balance with United States Exports by Commodity Agriculture/Fishing Products Energy Products Forestry Products Industrial Goods & Materials Machinery & Equipment Automotive Products Other Consumer Goods -4.1 7.6 -5.1 -3.5 4.6 1.3 6.0 1.5 9.0 2.7 1.7 -1.8 -7.4 -0.5 -1.1 -7.9 -6.8 3.9 -5.0 4.5 8.6 7.0 -7.3 8.6 0.5 -5.9 12.3 8.1 Imports by Commodity Agriculture/Fishing Products Energy Products Forestry Products Industrial Goods & Materials Machinery & Equipment Automotive Products Other Consumer Goods MEI March/April 2003 7 LABOUR MARKET TRENDS Employment and Unemployment Canada's labour market held firm in March... Employment rose by 14 000 in March, following a strong gain of 55 000 in February. This brought job gains over the first quarter to 67 000. Full-tim e jobs (+23 000) accounted for all the employment growth in March, with gains totalling 85 000 in the first quarter. On the other hand, part-time employment has continued to show weakness, with 17 000 fewer people working part-time in the first quarter. In contrast, the employment situation deteriorated further in the U.S. as non-farm employment decreased by 108 000 in March, reaching its lowest level since Dec em ber 1999. T he unem ploym ent rate was unchanged at 5.8%. Employment 100 80 60 40 20 0 -20 -40 1998 Monthly change in thousands 1999 2000 2001 2002 2003 …and the unemployment rate fell slightly In line with employment growth, the unemployment rate edged down 0.1 percentage point to 7.3% in March, its lowest rate since October 2001. The employment rate (62.5%) and the participation rate (67.5%) remained at their historical highs, reflecting the current strength of the labour market. A small gain in employment (+7 000) and a large drop in the labour force participation pushed down the youth unemployment rate 0.5 percentage point to 12.7%. The unemployment rate of adults was unchanged at 6.3%. Unemployment Rate 13.0 12.0 11.0 10.0 66.0 9.0 8.0 7.0 Participation Rate (Right) 6.0 1992 1994 1996 1998 2000 2002 64.0 % Unemployment Rate (Left) 67.0 % 68.0 65.0 Labour Force Trends Levels (in thousands) Employment Full-time Part-time Youth 15-24 Adult 25+ Self-employed Unemployment Unemployment Rate Youth 15-24 Adult 25+ Labour Force Participation Rate Employment Rate 2002 March 15,268.1 12,433.1 2,835.0 2,355.8 12,912.3 2,293.5 1,274.8 7.7 13.6 6.5 16,543.0 66.6 61.5 Change since 2003 March 15,717.0 12,758.0 2,959.0 2,429.3 13,287.7 2,392.0 1,246.7 7.3 12.7 6.3 16,963.7 67.5 62.5 % Change since year-todate 67.3 84.6 -17.3 24.8 42.5 13.5 -28.9 -0.2 -0.6 -0.1 38.4 0.0 0.1 2003 February 15,702.8 12,735.3 2,967.5 2,422.5 13,280.3 2,379.3 1,257.9 7.4 13.2 6.3 16,960.6 67.5 62.5 last month 14.2 22.7 -8.5 6.8 7.4 12.7 -11.2 -0.1 -0.5 0.0 3.1 0.0 0.0 last year 448.9 324.9 124.0 73.5 375.4 98.5 -28.1 -0.4 -0.9 -0.2 420.7 0.9 1.0 last month 0.1 0.2 -0.3 0.3 0.1 0.5 -0.9 last year 2.9 2.6 4.4 3.1 2.9 4.3 -2.2 0.0 2.5 MEI March/April 2003 8 LABOUR MARKET TRENDS Industry Overview Job losses in manufacturing pushed down employment in the Goods sector... Employment in the Goods-producing sectors fell by 17 000 in March, erasing most of the gains recorded in February. The struggling U.S. economy took its toll on export-oriented sectors. Manufacturing employment dropped 37 000, with losses concentrated in automotive, plastics, food and wood products. Manufacturing jobs (-54 000) have declined in five of the last seven months. Employment decreased in Agriculture (-8 000), marking the fourth consecutive monthly decline. Employment in Construction jumped 12 000 in March, the first gain since December. Employment in this sector was 59 000 (+6.8%) higher than a year ago, given a buoyant residential sector. Employment in the Natural Resources also rose (+11 000), mostly in mining, oil and gas extraction, which have benefited from higher energy prices. Employment by Major Sector 114 112 110 108 106 104 102 100 98 1998 1999 2000 2001 2002 2003 January 1998 = 100 Total Goods Services Employment Growth by Worker Category March 2003 (thousands) Total 14.2 448.9 ...while Services employment continued its upward trend Employment in Service-producing industries rose 32 000 in March and 88 000 jobs have been created since the beginning of the year. The large majority of March's gains were posted in Accommodation and Food services (+33 000) and concentrated in full-service restaurants. Other services (+12 000), Transportation and Warehousing (+3 000) and Educational services (+3 000) also increased. The largest losses were recorded by Public Administration (-6 000), and Finance, Real Estate & Leasing (-5 000). Industrial Employment Trends 2002 March 3,898.3 Goods-producing Agriculture 314.1 Natural Resources* 283.9 126.1 Utilities Construction 856.7 Manufacturing 2,317.5 Services-producing 11,369.8 Trade 2,437.3 Transportation* 733.1 882.8 FIRE* 976.0 Professional/Scientific 594.9 Management/Administrative 985.5 Educational Services Health Care/Social Assistance 1,558.7 Information/Culture/Recreation 709.5 1,005.0 Accommodation & Food 697.0 Other Services 789.8 Public Administration (in thousands) Levels 2003 February 4,006.6 347.8 279.9 127.1 903.1 2,348.7 11,696.2 2,448.7 763.4 934.3 1,008.6 612.5 1,051.5 1,670.7 685.8 1,013.0 711.1 796.5 2003 March 3,989.2 340.1 290.8 131.5 915.2 2,311.5 11,727.8 2,447.0 766.3 929.3 1,006.3 610.4 1,054.3 1,669.8 685.7 1,045.6 723.1 790.1 last month -17.4 -7.7 10.9 4.4 12.1 -37.2 31.6 -1.7 2.9 -5.0 -2.3 -2.1 2.8 -0.9 -0.1 32.6 12.0 -6.4 Private employees Selfemployed Public sector -5.9 7.4 224.6 12.7 98.5 125.8 month-over-month year-over-year Change since last year-toyear date 90.9 -20.8 26.0 -15.1 6.9 20.5 5.4 0.4 58.5 3.9 -6.0 -30.7 358.0 88.2 9.7 0.5 33.2 0.5 46.5 25.7 30.3 -14.5 15.5 -1.9 68.8 4.1 111.1 15.0 -23.8 -7.8 40.6 29.4 26.1 28.0 0.3 9.1 % Change since last last month year -0.4 2.3 -2.2 8.3 3.9 2.4 3.5 4.3 1.3 6.8 -1.6 -0.3 0.3 3.1 -0.1 0.4 0.4 4.5 -0.5 5.3 -0.2 3.1 -0.3 2.6 0.3 7.0 -0.1 7.1 0.0 -3.4 3.2 4.0 1.7 3.7 -0.8 0.0 *Natural Resources: Forestry, Fishing, Mining, Oil & Gas; Transportation includes warehousing; FIRE: Finance, Insurance, Real Estate & Leasing. MEI March/April 2003 9 LABOUR MARKET TRENDS Provincial Overview Job gains were concentrated in British Columbia and Ontario... Employment increased by 18 000 (+0.9%) in British Columbia, all in full-time, as Goods-producing industries continued to report strong gains. Ontario's employment (+0.3%) continued to trend upward as a reduction in Manufacturing was more than offset by gains in Health & Social Assistance and Accommodation & Food. Employment fell 21 000 (-0.6%) in Quebec, following two months of small changes. The largest losses were in Manufacturing, due mainly to declines in wood products, clothing and aerospace industries. There were little employment changes in other provinces. Regional employment patterns 113 110 107 104 101 98 1998 1999 2000 2001 2002 2003 January 1998 = 100 Atlantic Prairies B.C. 116 113 110 107 104 101 January 1998 = 100 Quebec Ontario ...and the unemployment rate decreased in six of the ten provinces Nova Scotia's unemployment rate increased to 9.3%, as more people sought jobs. A small gain in employment and a drop in the labour force pushed down the unemployment rate to 17.1% in Newfoundland & Labrador and to 9.8% in New Brunswick. Prince Edward Island's rate rose 1.3 percentage point to 12.8%. In Quebec, employment losses pushed up the unemployment rate from 8.6% in February to 8.9% in March. Ontario's unemployment rate declined for the third consecutive month (0.2 percentage point to 6.5%), reaching its lowest level since September 2001. Employment growth helped push the unemployment rates down to 7.7% in British Columbia and 4.8% in Manitoba. Despite a small decrease in employment, the unemployment rate dropped from 6.0% to 5.6% in Saskatchewan, as less people looked for jobs. Alberta's rate edged up 0.1 percentage point to 5.2%. 98 1998 1999 2000 2001 2002 2003 Unemployment Rates -- March 2003 % 17.1 12.8 9.3 9.8 8.9 6.5 5.6 5.2 4.8 7.7 7.3 Provincial Employment and Unemployment Trends Employment (thousands) Levels 2003 March Canada 15,717.0 Unemployment Rate (%) Change since last year (000's) % 448.9 3.2 0.9 10.8 4.6 76.6 223.0 0.1 11.8 43.4 74.4 2.9 1.5 1.4 2.5 1.3 2.2 3.7 0.0 2.5 2.6 3.8 Change since last month (000's) 14.2 0.1 -0.6 0.9 1.2 -20.8 17.1 0.5 -0.2 -1.7 17.7 % 0.1 0.0 -0.9 0.2 0.3 -0.6 0.3 0.1 0.0 -0.1 0.9 Levels 2003 March 7.3 17.1 12.8 9.3 9.8 8.9 6.5 4.8 5.6 5.2 7.7 Change since last last month year -0.1 -0.4 1.3 0.4 -0.9 0.3 -0.2 -0.3 -0.4 0.1 -0.5 -0.4 0.5 0.4 -0.4 -0.5 0.1 -0.6 -0.2 -0.1 0.3 -1.3 Newfoundland & Labrador 218.7 67.2 Prince Edward Island Nova Scotia New Brunswick Quebec Ontario Manitoba Saskatchewan Alberta British Columbia 436.3 351.4 3,634.5 6,237.0 567.2 487.4 1,697.6 2,019.7 MEI March/April 2003 B C C an ad a N .& O nt M an Sa sk A lt a L. PE I Q ue N S N B 10 PRICES and FINANCIAL MARKETS Consumer and Commodity Prices Inflation was 4.6% in February... The year-over-year increase in the Consumer Price Index (CPI) edged up from 4.5% in January to 4.6% in February, with the energy subset up from 15.3% to 19.7%. Excluding energy, inflation was down from 3.5% to 3.4%, with three of the eight major components p o s t i n g s m a l l e r i n c r e a s e s t h a n i n J a n u a r y. Clothing prices fell for the fifteenth month in the past year and a half. Larger rises in homeowner insurance premiums and household furnishing costs exerted upward pressure. On a monthly basis, the CPI was up 0.7%, following a decline of 0.3% in December and a rise of 0.8% in January. Transportation costs continued to rise and clothing and recreation costs recovered after a string of declines. Meanwhile, food and shelter costs levelled off. In March, higher energy prices led to a 6.3% increase in commodity prices. However, energy prices came down in early April as anxiety related to crude oil supply eased. Commodity Prices ($US basis) 180.0 160.0 140.0 120.0 100.0 Total 80.0 60.0 40.0 1996 1997 1998 1999 2000 2001 2002 2003 Energy Excluding energy Index, 1982-90=100 Consumer Prices February 2003 Index (1992=100) All items CPI Food Shelter Household operations Clothing & Footwear Transportation Health & Personal Care Recreation, Educ. & Reading Alcohol & Tobacco Energy 122.3 122.1 116.7 114.5 103.8 144.1 116.4 127.1 133.5 146.5 % Change since last last month year 0.7 -0.2 0.4 0.5 2.2 1.6 0.3 1.4 1.1 0.5 4.3 4.6 1.2 3.2 1.2 -1.5 13.0 1.4 2.4 18.2 3.1 19.7 ...and the "core" rate remained above the target range The "core" rate of inflation, which excludes the eight most volatile components and indirect taxes, was down from 3.3% in January to 3.1% in February, remaining above the upper bound of the 1%-3% official target range. Excl. 8 Most Volatile/Indirect Taxes 121.9 Commodity Prices (March 2003) Index, 1982-90=100 125.5 98.5 175.8 6.3 -1.6 15.8 28.3 -0.4 83.9 Excluding Energy Energy Consumer Price Index 5.0 % change, year-over-year Provincial CPI Inflation -- February 2003 4.0 % 6.7 6.8 3.0 Official Target Range: 1%-3% 2.0 5.0 7.2 6.9 4.3 4.4 4.1 4.5 3.2 4.6 1.0 All items Excluding 8 most volatile components and indirect taxes 0.0 B C C an ad a O nt M an Sa sk A lt a L. PE I Q ue N B N S -1.0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 MEI March/April 2003 N .& 11 PRICES and FINANCIAL MARKETS Short-term and Long-term Interest Rates The Bank of Canada raised interest rates while the Fed remained cautious The Bank of Canada increased its overnight rate by a quarter of a percent to 3.0% on March 4. The Bank indicated that, with the strength in domestic demand, above-target inflation rates elevated the risks of higher inflation rate expectations. On March 18, the Federal Reserve (Fed) left the Fed Funds rate unchanged at 1.25%. The Fed conceded that geopolitical uncertainties were clouding an already mixed set of incoming economic data, which would require enhanced vigilance in the meanwhile. The next policy-setting dates in Canada and the United States are April 15 and May 6, respectively. In line with these developments, the Canadian 90-day corporate rate jumped to 3.3% after having remained around 2.9% for several months, while its U.S. counterpart stayed around 1.2%. This brought the Canada-U.S. rate spread to 204 basis points (bps) in early April, up from 172 bps in February and the highest since the spring of 1995. Bond markets go along with unsettled investor sentiment Long-term interest rates rose from a low of 4.8% on March 10 to a high of 5.22% on March 21, as investors switched funds to equities following the start of the war in Iraq. They subsequently fell as investors shifted their attention to economic fundamentals and uncertainty over the global economic recovery. In the U.S., long-term yields increased from a low of 3.6% on March 12 to 3.93% on April 9. One-year mortgage rates were up to 5.35% in early April after staying at 4.90% in the previous four months. Meanwhile, 5-year rates rose to 6.85% from 6.45% in January and 6.60% in February. Key Market Rates Short-term Interest Rates 10 8 6 4 2 0 -2 Spread 2.50 22 Fe b Fe 5 b 19 M ar M 5 ar 19 A pr 9 Ja n 90-day Corporate Paper 3.50 Canada (daily) (end of period) 2001 90-day spread Corporate against Paper U.S. Long Bond Yield spread against U.S. 2.08 2.83 2.83 2.85 2.83 2.91 2.97 3.28 3.26 0.19 1.50 1.20 1.50 1.50 1.66 1.72 2.08 2.04 5.44 4.88 5.16 5.18 4.88 5.02 4.93 5.13 5.06 0.22 0.93 1.17 0.92 0.93 0.96 1.15 1.17 1.13 United States 3.25 2002 Oct 2002 Canada 3.00 Nov Dec Jan 2003 Feb Mar April 9* 2.75 -4 1995 1996 1997 1998 1999 2000 2001 2002 2003 A positive spread indicates that Canadian rates are above their U.S. counterparts. * Bank of Canada's Weekly Financial Statistics Long-term Bond Yields 10 8 6 United States 4 2 0 Spread -2 1995 1996 1997 1998 1999 2000 2001 2002 2003 5.15 4.95 4.75 4.55 Fe 5 b 19 M ar M 5 ar 19 A pr 9 Ja n Fe b 22 5.55 Canada 5.35 Canada (daily) Key Lending Rates (end of period) 2001 2002 Oct 2002 Nov Dec Jan 2003 Feb Mar April 9* Prime Overnight Lending Mortgage Rate 1 year 5 year Rate Rate 2.25 2.75 2.75 2.75 2.75 2.75 2.75 3.00 3.00 4.00 4.50 4.50 4.50 4.50 4.50 4.50 4.75 4.75 4.60 4.90 5.30 4.90 4.90 4.90 4.90 5.35 5.35 6.85 6.70 7.00 6.70 6.70 6.45 6.60 6.85 6.85 * Bank of Canada's Weekly Financial Statistics MEI March/April 2003 12 PRICES and FINANCIAL MARKETS Exchange Rates and Stock Prices The Canadian dollar reached a three-year high in March The Canadian dollar touched US¢68.4 in late March, up 7.1% since the beginning of 2003 and its highest level since April 2000. Comparatively, good economic conditions in Canada combined with rises in commodity prices and in the short-term Canada-U.S. interest rate spread have buttressed the currency. Furthermore, the dollar has benefited from the weakening of the U.S. currency caused by concern over substantial fiscal and current account deficits. Year-to-date, the Canadian dollar has appreciated by about 8% against the Yen and by about 4% against the Euro. Meanwhile, the U.S. dollar has lost about 2% of its value against the Euro and had also depreciated against the Yen, but regained some ground recently. The prospect of a short war in the Middle East lifted stock markets North American stock indices recovered in March as the launching of the attack in Iraq helped investors look beyond the military operations to a pick-up in economic activity and corporate profit. The Dow Jones, which was down by more than 12% since the beginning of the year, had regained three quarters of its loss on April 4. Meanwhile, the S&P/TSX index fell 6% to a low of 6229 on March 12, but regained half of its loss by April 4. The Dow Jones and the S&P/TSX closed at 8277 and 6395, respectively, on April 4. Canadian Dollar 0.85 0.80 0.75 86 0.70 82 0.65 0.65 78 0.64 22 Fe b Fe 5 b 19 M ar 5 M ar 19 A pr 9 Ja n The Canadian Dollar 1992=100 versus US dollar (Left) versus C6 index (Right) 94 90 0.68 0.67 98 0.69 $US/$CAN Canada (daily) (close) $US vs. $CAN index vs. C-6 (92=100) $CAN vs. EURO yen vs. $CAN 2001 2002 Oct 2002 0.6278 0.6339 0.6421 0.6390 0.6339 0.6572 0.6739 0.6813 0.6817 78.95 78.80 78.17 78.29 78.80 79.37 80.83 82.83 83.09 1.387 1.483 1.548 1.573 1.588 1.637 1.631 1.594 1.576 80.76 78.20 78.53 77.40 78.20 77.07 78.93 80.40 81.50 0.66 Nov Dec Jan 2003 Feb Mar April 9* 0.60 74 1995 1996 1997 1998 1999 2000 2001 2002 2003 * Bank of Canada's Weekly Financial Statistics Stock Market Indices 12,500 Dow Jones Industrial Average 7,000 7,500 Key Stock Market Indexes S&P/TSX (daily) S&P/TSX Oil & Gas Metals & Minerals Utilities Paper & Forest Merchandising Financial Services Golds 5 19 19 5 9 March Close 6,343 10,084 3,584 9,545 4,569 6,185 10,525 5,104 848.2 7,992 % change from last last month year -3.2 -5.1 -3.7 -0.6 -5.5 -1.7 -0.4 -11.1 0.8 1.3 -19.2 -3.6 -24.3 -4.6 -20.3 -18.4 -7.8 -17.6 -26.1 -23.2 10,000 7,500 S&P/TSX 5,000 6,500 6,000 Fe b Ja n Fe b MEI March/April 2003 M 2,500 1995 1996 1997 1998 1999 2000 2001 2002 2003 5,500 22 S&P 500 Dow Jones ar M A pr ar 13 THE UNITED STATES ECONOMY U.S. Economic Trends Real GDP growth slowed in the fourth quarter... Real GDP grew 1.4% (upwardly revised from 0.7%) in the fourth quarter, down from 4.0% in the third. Lower vehicle sales accounted for much of the decline, but the revised figures show that overall consumer spending grew more than first estimated (1.7% compared to preliminary estimates of 1.0%). Rising imports and lower exports also contributed to the slowdown. ...and recent indicators point to slow growth in the first quarter Weak consumer spending and geopolitical uncertainties undermined the U.S. recovery in the first quarter. As such, retail sales declined 1.6% in February accompanied by a sharp drop in motor vehicle sales. Likewise, the housing market, a source of strength in 2002, showed signs of slowing with housing starts declining 11.0% in February. In March, the Consumer Sentiment Index (University of Michigan) fell further to 77.6, its lowest level since September 1993. On the other hand, industrial production increased in January and February, but in March, the Institute of Supply Management manufacturing index slipped to 46.2, following four consecutive months above the 50 mark (an index value greater than 50 indicates an expanding sector). The labour market weakened further in March After plunging 357 000 in February, non-farm employment fell 108 000 in March. The services-producing sector accounted for most of the losses, but manufacturing employment fell at a larger rate (0.2%). The unemployment rate held steady in March at 5.8%. Productivity in the non-farm sector rose 0.8% (annual rate) in the fourth quarter following a rise of 5.5% in the third quarter. On a year-over-year basis, higher energy prices pushed up CPI inflation by 0.4 percentage point in February to 3.0%. Core inflation fell to 1.7% from 1.9% in January. U.S. Real GDP Growth % change, SAAR 4.4 5.0 4.3 4.1 3.8 2.4 2.7 1.3 0.3 1.4 4.0 400 200 0 -200 -400 97 98 99 00 01 02 4 2001 1 2 3 2002 4 1998 1999 2000 2001 2002 2003 600 U.S. Non-Farm Payrolls Monthly change in thousands U.S. Consumer Price Inflation 4.0 % change, year-over-year U.S. Unemployment & Participation Rates 8.0 % % 69 3.0 6.0 68 2.0 4.0 67 1.0 Excluding Food & Energy Total 2.0 Unemployment Rate (Left) Participation Rate (Right) 66 0.0 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Source: U.S. Bureau of Economic Analysis & U.S. Bureau of Labor Statistics 0.0 65 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 MEI March/April 2003 14 COMING UP Key Future Data Releases and Planned Events CANADA Canadian International Merchandise Trade - February Key Policy Interest Rate Announcement Monthly Survey of Manufacturing - February Consumer Price Index - March Real GDP by industry - February Labour Force Survey - April Financial Statistics for Enterprises - 1st Quarter Balance of International Payments - 1st Quarter National Economic and Financial Accounts - 1st Quarter April 10 April 15 April 16 April 23 April 30 May 9 June 11 May 29 May 30 UNITED STATES Consumer Price Index - March International Trade in Goods and Services - February Federal Open Market Committee Meeting GDP - 1st Quarter 2003 (advance) The Employment Situation - April April 16 April 10 May 6 April 25 May 2 Note: The March/April 2003 MEI uses data available as of April 9, 2003 MEI March/April 2003 15